Background

A large part of the working population is not saving enough for retirement, people are living longer and state pensions may not be able to provide for all of our needs. As part of a wider initiative the Government introduced legislation to increase private pension savings and combat poverty in retirement.

This initiative marked the greatest ever change to social security policy, forcing greater financial responsibility on eligible workers. It was also perhaps the largest social experiment ever conducted, relying on the effect of inertia to ensure these workers continued saving.

Starting in October 2012, all employers are required to enrol eligible UK workers into a pension scheme that meet certain standards and make contributions to it on their behalf.

The staging date for auto-enrolment was allocated to employers on 1 April to 2012 depending on the size of their largest PAYE scheme. Staging dates have been spread over 5 years, with the largest schemes needing to comply first.

Challenges posed by Auto-Enrolment

The impact of this legislation on employers has been wide-ranging and complicated. Not only did the changes represent increased costs for many employers, but ensuring the compliance requirements have been met has required detailed planning and preparation well in advance in order to avoid considerable fines for non-compliance.

Just implementing an auto-enrolment solution has required significant involvement from human resources, finance, payroll, and external suppliers such as pension providers and lawyers. And the temptation is to stick to what’s in place – even if it the process requires manual workarounds, or that the ongoing administration tasks, such as employee assessments and notifications, are more time consuming and involved for HR administrators than they need to be.

Key considerations

Although the initial focus of many employers has naturally been compliance, streamlined ongoing administration is a vital consideration. In order to get the best of both worlds – compliance and a sophisticated automated solution – employers will need to work closely with an expert who can:

  1. Design the scheme to meet specific reward and HR objectives across multiple employee segments;
  2. Provide an integrated administration solution to minimise costs and risks;
  3. Implement efficient communication solutions to maximise employee engagement.

Phased Contributions

At staging date, the total minimum required contribution is 2% of ‘qualifying earnings’ - with a 1% employer minimum contribution. From 1 October 2017, the minimum employer contribution will increase to 2%, increasing again in October 2018, to 3%. Many employers have chosen to use a different definition of pensionable earnings to ‘qualifying earnings’ (e.g. Basic Salary) in order to simplify the process. Dependant on which alternative basis (or ‘tier’) the scheme has been certified could see employer contribution levels increase to as much as 4% by 2018. Should an alternative definition of pensionable salary be used employers are required to re-certify that the scheme meets the relevant minimum requirements, typically at each 18 month period.

Re-Enrolment

Every three years after their staging date, employers are required to automatically re-enrol employees who have previously opted out, ceased active pension membership, or reduced contributions below the minimum threshold.  If a worker has ceased active membership within 12 months of the re-assessment date then employers now have the option to re-enrol them back in to the scheme (a change from the original requirements where they were excluded).

The re-enrolment requirement allows for 3 months flexibility either side to allow employers to align re-enrolment with existing processes, or to run 2 re-enrolments per year.

Why not speak to one of our experts to see how auto-enrolment could affect your organisation? Get in touch with us today.